The 4 Percent Rule -- What is the Right Amount to Withdraw from Your Retirement fund each year?With stagnant incomes and roller-coaster investment returns over the past decade, individualson the brink of retirement might wonder what became of all those “rules of thumb” affecting howthey handle their nest egg once they walk away from their jobs.They’re still there. But the question of how well they work comes down to the individual.Chief among them is the “Four Percent Drawdown Rule” first revealed by CERTIFIEDFINANCIAL PLANNER™ professional William Bengen in the October 1994 issue of theFinancial Planning Association’s Journal of Financial Planning. Bengen wrote that retirees whotook out no more than 4.2 percent of their mostly stock-based portfolio in the initial year
Hong Kong consulting firm GaveKal said in their Checking the Box Newsletter on January 21, 2011 regarding China’s growth: 15% loan increases in 2003-07 brought 12% economic growth, then in 2009 loans increased 33%, 2010 they increased by 19% but that resulted in lower growth. My opinion is that China’s economy is reaching a point where economic growth caused by loans is diminishing in proportion to the capital used. Also, an extraordinary increase in lending occurred post-2008 crash, which implies that China’s boom is unsustainable.
Municipal Bonds Looking Riskier
China’s inflation rate last month was slightly lower than the month before, but the moderate increase may have been due to a high base used previously. Some had thought prices would increase a lot in the first quarter of 2011, which would incur the risk that a sharp slowdown would be needed to cool off inflation.
The Shanghai market dropped nearly 3% Thursday because of fears that an overheating Chinese economy would result in monetary tightening. Even though the authorities tried to slow down the economy they were unable to cool it down, which implies harsher measures will be imposed, leading to a slowdown. China was expected to slow down but didn’t, so this surprise hurt the market.
The real estate crash that won’t go away.
The income method of investment analysis is the best way to analyze an investment. This method involves looking at income and using a multiple to estimate the value of an investment. A similar technique is used in evaluating investment real estate or loan applications. Assets that have no income stream such as commodities, collectables, or new dotcom stocks are intrinsically riskier because they lack this ability to be analyzed by their income thus forcing investors to make huge leaps of faith using various dubious metrics. So the type of investors who invest in things with no income stream could be less rational and more emotional than investors who confine their investing to things that have an income stream.
Michael Pettis, a Shenyin Wanguo Securities (Hong Kong) financial expert says that China’s central bank has a choice of either fighting inflation by raising interest rates, which would cause a crash in China, or if they don’t raise rates then imbalances in China will continue to grow, ultimately leading to a more significant crash.
In the 1980’s the bond vigilantes would raise interest rates when it was feared that inflation was returning. Today people ask when they see inflation with no reaction by the bond market “where are the bond vigilantes?” The answer is that the bond vigilantes have responded to the threat of inflation by going underground and morphing into other forms. For example when the marketplace wants to protect itself from inflation, capital flees into traditional inflation hedges like gold, silver, base metals, commodity futures, rare art, etc. But capital also flees from the threat of inflation into any perceive hedge including common stocks that are not connected to commodities. Barron’s article of 1-17-2011 had a panel of investment experts, including